Bank - Activity Based Costing

The Bank offers only checking accounts. Customers can write checks and use a network of automated teller machines. The bank earns revenue by investing the money deposited; currently, it averages 5.2 percent annually on its investments of those deposits. To compete with other banks, The bank pays depositors 0.5 percent on all deposits. The bank's annual operating costs activities:

(b) Compute the profit from Customer A and Customer B, assuming that customer costs are based only on deposits. Interest costs = 0.5 percent of deposits; operating costs are 4 percent ( = $8,700,000/$187,500,000) of deposits.

(c) Compute the profit from Customer A and Customer B, assuming that customer costs are computed using the information in the activity-based costing analysis.

Solution Summary

The solution applies activity based costing techique to bank cost and compute the bank's operating profits, compute the profit from Customer A and Customer B using both traditional costing and activity-based costing analysis.